Fortune REIT's DPU hits nine-year high

And profit rose an impressive 22.9%.

According to OCBC, 9M12 DPU grew 23.1% YoY, representing the highest rate of growth in the REIT’s nine-year history. The results are in line with our expectations, with 9M12 DPU of 23.98 HK cents forming 74% of FY12 DPU estimate.

Here's more from OCBC:

3Q12 revenue climbed by 22.6% YoY to HK$284.7m and NPI rose 22.9% YoY to HK$199.3m. 9M12 revenue increased by 21.1% to HK$822.1m. The 20.7% increase in 9M12 NPI to HK$581.4m can be broken down into an 11.6% increase from the two new properties acquired in mid-Feb and a 9.1% increase from the original portfolio due to strong reversion and AEI.

Despite AEI at Fortune City One and Jubilee Square, portfolio occupancy only declined slightly from 96.5% as of 30 Jun to 96.1% as of 30 Sep. The average rental reversion clocked was impressive at 20.1%, among the highest level in years.

The fraction of tenant’s trade mix attributable to non-discretionary retail sector remains constant at about 60%, giving the portfolio resiliency. Management indicates that even tenants who are in discretionary consumption may also renew leases at substantially higher rents, e.g. real estate companies are willing to accept paying double the rents they signed on for in 2010.

We believe that there is room for further appreciation of FRT’s unit price. As we have wrote about in our report dated 8 Oct 2012, FRT can see further dividend yield compression (from unit price increases).

Relative to the average yield for HK physical retail property (currently around 2.7%), FRT’s FY12F yield of 5.4% is above the historical average. At an NAV per unit of
HK$8.32, FRT is trading at 0.7x NAV, significantly under the retail S-REITs average of ~1.1x. Gearing remains low at 24.6%.